Overview of Fiscal 2009 Closing of Accounts and Performance Outlook for 2010

26 February 2010Takenaka Corporation

During fiscal 2009, the Japanese economy suddenly entered a recessionary phase due to the world financial and economic crisis that began in the United States. While there was some recovery in exports and production due to foreign demand in the second half of the year, personal consumption remained stagnant due to the worsening employment situation. With continuing concern for the underlying deflation, overall severe conditions continued to be experienced with the downward trend in the economy.
With regard to the construction industry environment, the trend toward lower investment in public works became markedly clear, and there was a substantial reduction in private investment in housing starts. There was also a continuing movement toward weakening plant and equipment investment due to decreasing corporate profits and overcapacity. As a result, there was even more intense competition between companies, and in addition, the collapse of emerging developers, the feeling of credit insecurity of developing countries, and concerns over recovering construction work payments both within and outside of Japan, caused the management environment to move into an even more severe condition.
Against the backdrop of this situation, the Takenaka Group has implemented sound management, placing priority on strengthening our corporate culture and quality management based on the group's principle of "trust first" developed over Takenaka's 110-year history, and has worked to improve our performance based on a customer-oriented approach, strict observance of legislation and social norms, strengthened safety management and cutting production costs. However, problems remained with both volume (amount) and quality (profits).
The consolidated performance of the Takenaka Group (36 companies under the consolidation method and 22 companies under the equity method, giving a total of 58 companies) and parent-only performance for fiscal 2009 are as follows.

1. Overview of Closing of Accounts for Fiscal 2009

(1) General Overview: Revenue fell for both Takenaka Corporation and the group. Profits also fell, except for net profits for both and ordinary profits for Takenaka Corporation for the year.

Actual results and comparisons with the previous year's figures for main categories are shown in the table below.

*1 Figure for "Actual figure" shows the profit rate for completed work, and figure for "compared to previous year" shows the percentage point increase and decrease.*2 Figure for "Work carried forward" to the following period is in comparison to the end of the previous year.

(2) Overview of Main Categories

1)

Orders Received (Construction):
Orders received fell by 13 percent for Takenaka Corporation and 15 percent for the group due to a shrinkage in the construction market and the movement toward selected orders.
Orders received by Takenaka's overseas construction operations fell by 33 percent from the previous year to 78.7 billion yen (accounting for eight percent of consolidated construction orders received).

(Parent-Only)
Under the severe operating environment, orders fell by 13 percent to 883.9 billion yen from the previous year, and dipped below one trillion yen for the first time in four years.

(Consolidated)
In addition to a fall in orders received by Takenaka Corporation, because orders received by Takenaka's overseas construction affiliates also fell, consolidated construction orders fell by 15 percent to 985.7 billion yen, dipping below one trillion yen for the first time in seven years, since 2002.

2)

Sales:Both consolidated and parent-only ordinary profit fell.
Sales by overseas operations, including development projects, fell by 28 percent from the previous year to 98.9 billion yen, and the percentage of consolidated sales accounted for by overseas operations fell by three percent point from the previous year to eight percent.

(Parent-Only)
Under the severe operating environment, both orders received and works completed for minor works fell for the year, and because major development works came full circle, sales fell by seven percent to 983.9 billion yen, dipping below one trillion yen for the first time in five years.

(Consolidated)
In addition to a fall in revenue by Takenaka Corporation, because there was a fall in revenue by the overseas construction affiliates, centering in Europe, consolidated sales also fell by nine percent to 1.1759 trillion yen from the previous year.

3)

Gross Profit on Sales:Sales profit fell for both Takenaka Corporation and the Takenaka Group.

(Parent-Only)
With regard to profit on completed work, although the company is striving toward selected orders, severe competition with orders and a reduction in renewal work resulted in a fall in the profit on completed work of seven percent to 52.4 billion yen from the previous year, and a fall in the profit rate of 0.1 percent point to 5.4 percent (the same as the interim report), worsening to the lowest level on record.
Unlike the previous year, no new major development works were completed, so profit on development projects fell by 60 percent to 3.5 billion yen, resulting in a drop in sales profit of 14 percent to 56 billion yen.

(Consolidated)
In construction operations, the drop in profit by Takenaka Corporation caused a drop in consolidated sales profit, and the profit rate on completed work declined by five percent from the previous year to 65.8 billion yen.
With development projects, the global contraction of the real estate market triggered by the Lehman Brothers shock resulted in a significant drop in profits (41 percent down from the previous year), and as a result consolidated sales profit fell by 12 percent to 81.7 billion yen.

4)

Operating Profit:Operating profit fell for both Takenaka Corporation and the Takenaka Group.

(Parent-Only)
The drop in sales profit caused operating profit to drop 56 percent from the previous year to 5.5 billion yen.

(Consolidated)
In addition to the drop in profit for the parent-only, the drop in profit for development projects both within and outside of Japan resulted in a drop of 37 percent to 14.7 billion yen compared to the previous year.

5)

Ordinary Profit:Consolidated ordinary profit fell, but due to increased dividends from subsidiaries and other factors, ordinary profit for the parent-only increased.

(Parent-Only)
With an exchange gain due to the weak yen reaching 400 million yen (compared to a loss of 2.7 billion yen in the previous year) and increased dividends from subsidiaries, nonoperating profit improved by 7.6 billion yen on the previous year, resulting in ordinary profit increasing by four percent on the previous year to 15.7 billion yen.

(Consolidated)
As with the parent-only, there was an exchange gain due to the weak yen reaching 300 million yen (compared to a loss of 2.8 billion yen in the previous year). But dividend income dropped and nonoperating profit only improved by 1.5 billion yen from the previous year, so ordinary profit was down by 28 percent from the previous year to 18.4 billion yen.

6)

Net Profit for the Current Period:Effects of revisions to the tax system resulted in increased net profit on a consolidated and parent-only basis.

(Parent-Only)
Because of the allocation of provision for bad debts for work receivables along with the collapse of emerging developers, extraordinary loss exceeded six billion yen, resulting in net profit for the current year to be up 76 percent to 4.8 billion yen from the previous year.

(Consolidated)
Although the parent-only allocated a significant amount in the provision for bad debts, because of revisions to the tax system whereby dividends from foreign subsidiaries are excluded from gross revenue, resulting in deferred tax liability reversal, net profit increased by 45 percent on the previous year to 11.8 billion yen.

2. Performance Outlook for Fiscal 2010

The performance outlook for fiscal 2010 (ending December 2010) is shown in the table below.
With regard to the construction industry environment, there are many underlying problems including the contraction in the size of the construction market, the sophistication and diversification of the needs of clients, concern for the rise in the cost of materials, and the ageing of skilled workers. The Takenaka Group believes this will mean a movement toward even more severe conditions.
Under such conditions, along with continuing to put the customer first and providing quality management by strengthening its ability to provide solutions centering on the group's design and engineering strength, with development projects, the group is aiming to improve efficiency and strengthening project bases through consolidation, and will strive to improve the efficiency and profitability of real estate management.

(1) Consolidated Performance

(2) Parent-Only Performance

(*) Profits from the merger with TAK Realty on April 1, 2010 are not reflected in the current forecast.